LONDON -- In the wake of 2009's 59% dividend "rebasing" and continual worries over its pension obligations, investors in BT
But over the last year, BT has outperformed London's flagship FTSE 100
And today's full-year results for the year ending March 31, 2012 show just how much progress has been made. To describe them as "sparkling" may be slightly over-egging the pudding, but not by much.
Let's look at the numbers.
- Underlying revenue is down 2% to 19 billion pounds.
- Adjusted pre-tax profit is up 16% at 2.4 billion pounds.
- Free cash flow is up 13% at 299 million pounds.
- Net debt is up 266 million pounds -- but after making a 2 billion pound pension deficit payment.
- Adjusted EPS is up 13% at 23.7 pence.
- The full-year dividend is 8.3 pence, up 12%.
- The board expects dividends to grow by 10% to 15% per year for the next three years.
In addition, problem child BT Global Services is turning the corner, delivering solid EBITDA growth -- the company's overall EBITDA target of above 6 billion pounds has been delivered a year early. Furthermore, 10 million homes and businesses now have a fibre connection passing their door -- months ahead of schedule.
There's also the intention to buy back more shares -- some 300 million pounds' worth over the next 12 months, in fact.
There's no denying that those are decent results -- especially in what chief executive Ian Livingston describes as a "challenging environment." Take it away, Mr Livingston: "We have delivered another year of growth in profits and free cash flow. Our financial strength has allowed us to invest in the business, make a 2 billion pound payment into the pension fund, reward employees, and deliver double digit growth in shareholder returns."
Yet, as I write these words, BT's share price is down 2.5%. Why?
Gimme the divi
The answer, I suspect, lies in the market's perception that not only is BT not quite out of the woods yet, but that it's also being parsimonious with that dividend.
A declared full-year dividend in the range 8.5 pence to 8.9 pence had been widely expected, for instance. In the event, 8.3 pence seems a little miserly, especially with earnings per share growing faster than the declared dividend, reaching 23.7 pence. That equates to a dividend cover of 2.9, which seems high for a utility.
And while the City is expecting a dividend of 10.1 pence to 12 pence for 2013, the mid-point of BT's target range of 10% to 15% would only deliver a dividend of 9.3 pence. Heck, even the upper limit of that range only delivers 9.5 pence, well below expectations.
Foolish bottom line
Even so, by my calculations that mid-point dividend of 9.3 pence places BT on a forward yield of 4.4% on today's share price of 214 pence. That's very reasonable. What's more, the shares are rated on an undemanding price-to-earnings ratio of eight, again assuming mid-range EPS growth.
In short, for income investors, I reckon BT is a buy. I hold, and today's numbers may prompt me to buy more. The shares seem cheap, and the well-covered dividend would seem to have considerable upside.
He avoided techs in the dot-com bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor."
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Malcolm owns shares in BT. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.